Monday, December 29, 2008

Why Spending Makes Sense When You're Broke

There's an instinctive tendency when an economy is in meltdown to slash spending. And yet the legitimate economists (the best and brightest who were scorned with contempt by the rightwing louts who spent the past eight years sabotaging the global economy) prescribe massive government spending to get our economies rolling again.

Granted it's not the same sort of chicanery that got the entire planet into this mess. It's not borrowing from strangers to finance tax cuts for the very richest people in the land. No, it's borrowing to spend on investments, it's investing, using government spending to create things that will pay dividends for decades to come. And, no, that doesn't mean more 2,000 pound bombs or more tanks or more military trinkets.

Confused? In today's New York Times, Nobel laureate economist Paul Krugman puts it into layman's terms:

"...let’s step back for a moment and contemplate just how crazy it is, from a national point of view, to be cutting public services and public investment right now.Think about it: is America — not state governments, but the nation as a whole — less able to afford help to troubled teens, medical care for families, or repairs to decaying roads and bridges than it was one or two years ago? Of course not. Our capacity hasn’t been diminished; our workers haven’t lost their skills; our technological know-how is intact. Why can’t we keep doing good things?

It’s true that the economy is currently shrinking. But that’s the result of a slump in private spending. It makes no sense to add to the problem by cutting public spending, too.

In fact, the true cost of government programs, especially public investment, is much lower now than in more prosperous times. When the economy is booming, public investment competes with the private sector for scarce resources — for skilled construction workers, for capital. But right now many of the workers employed on infrastructure projects would otherwise be unemployed, and the money borrowed to pay for these projects would otherwise sit idle.

And shredding the social safety net at a moment when many more Americans need help isn’t just cruel. It adds to the sense of insecurity that is one important factor driving the economy down."

Yes, the United States economy is in meltdown and, yes, it's governments - federal, state and municipal - were responsible for much of the problem through profligate spending and rash borrowing. But it wasn't the spending that was the real culprit but how the money was squandered - stupid spending with no returns save for massive corporate wealth - and how the government went to foreign lenders to fund tax cuts for the most privileged.

Sadly for we Canadians, we're still saddled with a leader who clings to the Grover Norquist/Dick Cheney model of government. What little moderation we've seen from Harper so far is driven by his insatiable quest for a majority that forces him to restrain his basest, ideological urges. The past six months have clearly shown that Harper's ideology doesn't include a chapter on how to actually lead a country in times of trouble. That's why he has given Canadians such a litany of erratic and contradictory messages about what's coming and what he proposes to do in response.